Canada should seek new markets for canola exports

If China sees Canada has other places to market significant quantities of its canola, it may be in a weaker position to impose changes. | Photo courtesy of Churchill Gateway Development Corp.

It’s tempting to label the dockage dispute between China and Canada’s canola exporters as an issue between a buyer and a seller. Indeed, it is that.

But beneath the surface, the roots shoot in many directions, hence the need for political action that saw Prime Minister Justin Trudeau announce that the Sept. 1 deadline for new dockage rules has been extended.

The fact is, when dealing with China, politics are always involved.

First, there is the argument advanced by China that the Canadian Grain Commission’s definition of clean canola at 2.5 percent dockage risks bringing blackleg into the country, so it wants dockage reduced to one percent.

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This government-ordered mandate supersedes deals between buyers and sellers.

The CGC argues there is little risk of exporting blackleg and that canola is only imported to areas in China where there is no rapeseed, so contamination is unlikely.

Various officials have weighed in on both sides.

China says it can buy its canola elsewhere. It imports four million tonnes annually from Canada, which is about 40 percent, or $2 billion worth of Canada’s canola exports.

Some on the Canadian side believe China is trying to eliminate a large stockpile of rapeseed oil by putting pressure on canola imports. Canadian exporters are naturally worried that dockage changes imposed by China will be expected by other countries. Canola is the only crop being targeted at the moment but that could change.

Trudeau once famously said he admired China because its dictatorship could order changes quickly. Hence, we have the canola concern.

Reduction in dockage is perhaps worth $40 million. If a compromise is reached, and say, China pays about $20 million less by splitting the dockage at 1.75 percent, Canadian farmers will be the ones to pay.

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Who wants to lose $20 million, with potentially more on the way as other countries demand the same deal?

Part of the problem may be the perception of who is in the best bargaining position. China might believe it has the high hand because it imports so much canola from Canada, but it can’t easily replace Canada’s canola with imports from other customers. Canadian exporters know this, so they may believe they’ve got more clout.

Has either side, or both sides, overestimated the strength of their negotiating positions?

The solution for Canada may be to place an emphasis on seeking other markets to export. China is a tempting market, and that must be nurtured, but canola exporters are at the mercy of government intervention in the market, as we’re seeing here. (Though China is by no means alone in that practice.)

If China sees Canada has other places to market significant quantities of its canola, it may be in a weaker position to impose changes.

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Unsaid in all this is what matters to farmers, who will bear the brunt of any changes. They need assurance of markets for their product and all this uncertainty plays out in crop decisions.

Kicking the issue down the road by extending the Sept. 1 deadline, as the Trudeau government has managed to negotiate (quite quickly after his appearance in China, interestingly enough), isn’t sufficient.

It will take significant political will by the Canadian government to resolve this dispute.